USD/TRY fades the uptick to 5.81, focus remains on US sanctions

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  • USD/TRY remains on the defensive so far this week.
  • TRY stays supported following Sunday’s elections.
  • US-Turkey effervescence over the S-400 system in centre stage.

The Turkish Lira keeps the positive note so far this week, taking USD/TRY to the middle of the daily range in the 5.7700 area.

USD/TRY focused on potential US sanctions

Somewhat alleviated concerns on the US-China trade war plus some positive headlines involving North Korea and the US have been underpinning the improved sentiment in the EM FX space in general, and the Lira in particular.

However, the imminent delivery of the Russian S-400 defence system to Ankara could spark a fresh round of US sanctions against the country, always with the US-made F-35 jets as the bargaining chip.

On the more domestic front, the recent results from the mayoral elections in Istanbul have given fresh wings to the Lira as well, although the upbeat momentum in the currency remains fragile to say the least.

What to look for around TRY

Recently, the CBRT left no doubts it will continue to support the current tight monetary conditions. However, the enduring disinflation process seen in past months opens the door to a potential shift from the central bank to a more accommodative stance, including the palpable chance of rate cuts despite this move on rates appears untimely in the near (and medium) term. On the positive view, TRY could gain some support along with the rest of the EM FX space in response to the recent shift of the Federal Reserve to a more dovish view on it monetary conditions. On the not-so-bright side emerges the protracted US-China trade dispute and its impact on the global growth. Still on the negatives, the country keeps delaying the implementation of the much-needed structural reforms, which carries the potential to undermine prospects of economic growth in the medium-to-longer run.

USD/TRY key levels

At the moment the pair is losing 0.22% at 5.7813 and a breakdown of 5.7116 (low Jun.24) would aim for 5.7025 (50% Fibo retracement of the 2019 rally) and then 5.6560 (low Jun.5). On the other hand, the next up barrier is located at 5.9076 (55-day SMA) followed by 5.9326 (high Jun.14) and finally 6.1516 (high May 23).

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